Unit 8 “Money”

1. Unit 8 “Money”

2. I. Three Uses of Money • Medium of Exchange • Any object that is accepted for goods and services • Barter- w/o money, trade goods and services are traded for others

3. Unit of Account • Means of comparing the values of goods and services • Store of Value • Money keeps its value in two forms: currency (bills and coins) and deposits (pay debts, convert to currency) • Interest- cost of borrowing money

4. Inflation- value of money goes down, prices go up • Determined by the Consumer Price Index (CPI)- change in prices of essential goods/services • Deflation- value of money goes up, prices down

5. II. Insurance • Insurance is essentially a bet between you and the insurance company • Costs • Premium- sum of money paid to the company for insurance • Deductible- expenses you must pay before insurer will cover expenses

6. III. Credit • Credit- loans, credit cards, any deferred payment • Four Cs Creditors look for • Capability- ability to repay debt • Capital- income or money in the bank • Character- willingness to repay debts • Collateral- property to secure a loan

7. Credit Cards • Form of revolving credit, borrow money on an ongoing basis • Monthly payments based on interest rates • At minimum payments, takes a long time to get out of debt

8. First Look: Inside the Fed

9. Unit 8“Federal Reserve System” National Geographic https://www.youtube.com/watch?v=_1NNEgmNc8k ‘Eye of the Storm’ http://www.youtube.com/watch?v=ziwut6qm7F0

10. I. Creation of “The Fed” • Federal Reserve Act of 1913- created the Federal Reserve • After getting off gold standard, needed federal bank to respond to economy • Purpose is to lend money to other banks in time of need

11. II. Structure of Federal Reserve System • Board of Governors • 7 directors, include Chairman (Ben Bernanke) • Twelve District Reserve Banks

12. Regulating Money Supply • Monetary Policy- actions Fed takes to influence level of GDP (value of economic activity in the country) and rate of inflation • Reserve requirement- amount of money banks must keep in Fed banks as a reserve • Prime rate- rate of interest for short term loans (to good customers or other banks)

13. Discount rate- cost of borrowing from the Federal Reserve • Reducing the rate- encourages banks to borrow more money so they lend more to other people • Increasing the rate- slows down economy by discouraging borrowing

14. Fed Policies • Easy-money policy- reduces rates, lowers reserve requirement, prints currency= more money in economy • Tight-money policy- increases rates, raises reserve requirement= less money in the economy Be the Fed Chairman http://www.frbsf.org/education/activities/chairman/

15. Other Fed Business • Automated Clearing House (ACH) -an electronic network that processes electronic debits & credits • Direct Deposits: payroll, social security & tax refunds • Direct Debits: mortgage payments, utility • The Reserve Banks & the EPN (Electronic Payment Network) edit & sort payments and deliver payments as an ‘interoperator’ between banks.